While venture capital is increasingly turning to cleantech, a major gap in project financing still exists.
For many clean technologies, the reality on the ground is that even the best solution can be hard for customers to pay for with cash -- the systems being sold are large and expensive. What consumer is going to pay $30k in cash to put a solar system on their roof, whether or not it makes sense financially? What budget-strapped facilities manager for a large company is going to install a superior HVAC system, if it means he goes over his budget this year, even if it saves money in the long run?
These are on the end user side, but other project financing needs are seen on the vendor side -- who is going to give a startup the money to build the first few plants for their breakthrough technology? Thus, we see a lot of business plans where the company is looking to use cash from VCs to build out a plant, or to pay for equipment to be leased to customers, and they are difficult to fund. VCs prefer not to provide capital for "steel in the ground," if possible -- traditional venture capital is often too expensive to be put into such hard assets.
But the need is real nonetheless, and a failure to get project financing can kill even the best-funded of technologies and business plans.
This gap appears to be being filled, fortunately, as other entities are also now recognizing the need. For example, GE Commercial Finance is now funding rooftop solar systems.
And other venture debt groups are now starting to provide early funding for some of the needs described above -- it's still expensive capital, but it's not as expensive as venture capital. You are going to see more of these project finance companies focusing on cleantech, since the markets for these technologies are real and fast-growing, and such financiers can find attractive opportunities with little competition for their services.
Over time, as such capital becomes more readily available, technologies such as distributed generation, building automation, and industrial water/ wastewater treatment are going to see very rapid demand growth. If the vendors of these technologies can arrange for the capex up front via such financing, then all the customer sees is an annual expense that is lower than the annual savings they enjoy from the system -- and that's an easy decision for the customer to make.